Overview
The Arkansas Department of Finance and Administration Office of Hearings and Appeals determined that the taxpayer did not prove entitlement to the farm machinery and equipment exemption by a preponderance of the evidence for purchases of all-terrain vehicles (ATVs).
Sales Tax Liability
Generally, the liability for collection and remittance of sales tax is on the seller unless the customer makes an exemption claim. In this case, the Department demonstrated that the taxpayer made an exemption claim at the time of the purchase of the ATVs. Consequently, the liability for payment of sales tax on the purchase of the machinery or equipment shifted to the taxpayer.
Failure to Prove Exclusive Agricultural Use
Furthermore, the taxpayer failed to prove by a preponderance of the evidence that the ATVs were used exclusively or directly in the production of food or fiber as a commercial business. The taxpayer also failed to demonstrate that the relevant machinery or equipment was directly and exclusively utilized in that pursuit, as required by Arkansas law.
Indirect Use in Farming Activity
There were uncertainties presented in the record indicating that the ATVs’ uses were indirect uses in relation to a farming activity, even though such activity may have been beneficial. The uncertainties presented by the current record prevented a finding that the taxpayer had proven entitlement to the farm machinery and equipment exemption by a preponderance of the evidence.
Decision Reference:
Arkansas Administrative Hearing Decision, Dkt. No. 23-151, 11/08/2022.
Frequently Asked Questions
What was the core issue in the Arkansas Administrative Hearing Decision Dkt. No. 23-151?
The main issue was whether the taxpayer proved that the purchased ATVs qualified for the farm machinery and equipment sales tax exemption under Arkansas law. The Department concluded that the taxpayer failed to meet this burden of proof.
Who is responsible for sales tax if an exemption claim is made?
When a customer claims an exemption at the time of purchase, the liability for the sales tax shifts from the seller to the buyer. In this case, because the taxpayer claimed the farm machinery exemption, they became liable for the tax if the claim was invalid.
Why did the Department reject the taxpayer’s exemption claim?
The exemption was rejected because the taxpayer did not prove that the ATVs were used exclusively and directly in a commercial farming operation, as required by law. Indirect or general use related to farming was insufficient.
What constitutes “exclusive and direct use” in Arkansas for sales tax exemptions?
Arkansas law requires that machinery or equipment be used solely and directly in the production of food or fiber for commercial purposes. General utility or supportive roles in farming activities typically do not qualify.
Can indirect uses of ATVs in farming qualify for exemption?
No. Indirect or ancillary uses, even if related to farming, do not satisfy the legal requirement for direct and exclusive use. The taxpayer must show that the equipment is central to the production process itself.